Can cost-based innovation help solve our debt crisis?

June 21, 2010 - 11:38 pm

Each of us are painfully aware of the new economic reality in which we find ourselves: national, state, and local government debt is skyrocketing. Simply put, it costs a lot more to provide and maintain government services than is taken in through taxes and other sources of revenue and thus we are forced to borrow to cover the difference. Every commentator on this subject offers essentially only three near-term solutions to the problem: raise taxes (some argue for lowering taxes), cut services and programs, and reduce the civil service payroll. And while all of these have historically played an important role in some form of debt remediation, I’m struck by the absence of the role of innovation in this national discourse. I’m not talking about entrepreneurial innovation which of course is a considerable generator of income and taxes; I’m talking specifically about cost-based innovation.

Cost-based innovation is all about applying ideas to reducing the cost of a product or service while still providing a similar or acceptable outcome. For example, during the great recession businesses didn’t stop having regional and national meetings (although they had less), they did them differently. Instead of flying all participants to a location and paying for the transportation, lodging, and food costs, they had participants attend the meetings virtually (more than ever, cost-based innovation often relies heavily on technology innovation). The outcome resulted not just in considerably lower meeting costs, but staff enjoyed the convenience of attending from their office, and businesses could claim an attendant reduction to their carbon footprint.

States are struggling with the costs of critical services such as healthcare, education, fire services, welfare programs, and infrastructure upkeep. With a public increasingly opposed to tax increases (I often remind my friends that when America was booming in the 1950’s, the highest tax rate was over 90%), governments have been reduced to eliminating services, programs and cutting payrolls (might there be higher unanticipated costs in the long run as a result?). Okay, so it may be prudent to cancel some nonessential programs. In many cases that’s the right thing to do even when the economy is good! However, instead of such radical measures, where possible, could we ask some probing questions: can the service be provided differently? How can we approach the problem from an entirely different perspective? Cost-based innovation is used in business all the time where it is often applied as a matter of survival. Shouldn’t the same principles apply to government?

Let’s assume most of our politicians are bright and well-intentioned individuals and let’s assume that they largely hire competent and energetic teams. Even these great leaders and teams may not have all the solutions. For this I propose that they ask the electorate for ideas. This is called open innovation. Granted, many governments are experimenting with this approach, but it remains as yet a largely untapped strategy. To solve the BP oil spill, people from all over the country have been submitting thousands of creative ideas. We are increasingly seeing business after business tap into their customers for ideas on improving and creating new products and services. This combination of cost, open, and technology innovation offers great potential to help solve our debt crisis. And don’t stop there; let’s use this approach to solve lots of problems. For every problem that our country or state has, I’m willing to bet people have good ideas to address them.

The problems we face and those we anticipate in the future will not be solved by business-as-usual. Regardless of political persuasion, all of us and our elected officials are going to have to do things differently. And doing things differently is what innovation is all about.